Risk & Compliance

Compliance Officers Fear Greater DOJ Scrutiny of Individuals

The heightened scrutiny could result in a mass exodus of compliance officers from their positions, research suggests.
David McCannApril 19, 2016
Compliance Officers Fear Greater DOJ Scrutiny of Individuals

Two events last fall left corporate compliance officers, and those that they report to, squirming in their seats.

Sally Yates, DOJ

Sally Yates, DOJ

First, in what’s now commonly referred to as the Yates Memo, Deputy Attorney General Sally Yates stressed that the Justice Department will step up efforts to prosecute individuals, both civilly and criminally, who perpetrate corporate misconduct.

The memo noted that there are “substantial challenges to pursuing individuals for corporate misdeeds.” These include diffuse decision-making responsibility within companies and the need for investigators to conduct “painstaking review” of corporate documents, which can number in the millions.

“These challenges make it all the more important that the Department fully leverage its resources to identify culpable individuals at all levels in corporate cases,” Yates wrote.

The other event was DOJ’s hiring of Hui Chen, a former federal prosecutor who later held in-house counsel positions at Microsoft, Pfizer, and Standard Chartered Bank, as its first full-time expert compliance counsel.

Judging from a report released Monday, corporate compliance officers (CCOs) and in-house corporate counsel are unnerved, to say the least, about the specter of heightened scrutiny. Among 78 such people who responded to a survey by law firm DLA Piper, 80% were at least somewhat concerned about the change in tone and tactics from Washington. And 91% of survey participants predicted greater scrutiny following Chen’s appointment.

But in the starkest evidence of their concern, 65% of the respondents said the recent developments would affect their decisions to remain in or accept positions as CCOs.

Why the gloom? Perhaps it’s because CCOs may believe it’s beyond their reach to ensure compliance. Only 30% of respondents were highly confident that they have sufficient resources, clout, and board access to effectively perform their jobs.

“The tension between heightened personal liability and stunted resources could have multiple negative implications for the compliance industry,” DLA Piper said in its report. “It could drain the industry’s talent pool, for instance, acting as a deterrent for early-to-mid-career professionals.” The report quoted one experienced compliance officer as stating, “If you have another 25 years to work, do you really need this kind of risk?”

Still, the law firm observed, the heightened concern could prove beneficial. For example, the report said, CCOs may be more likely to get the resources and authority they need if CEOs and boards fear for their own personal liability.

On the other hand, it might be understandable if CCOs fear being scapegoated internally. Guidance for DOJ staff in the Yates Memo stated that in order for companies to qualify for any credit for cooperating with investigators, they must “provide [DOJ] with all relevant facts related to individuals responsible for the misconduct.” In most cases, that would require companies to conduct an internal investigation.

The Yates Memo also said that, “absent extraordinary circumstances or approved departmental policy, [DOJ] will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation.”

A January opinion article in the Washington Business Journal, written by Dennis Boyle, a partner with law firm Fox Rothschild, summed up the situation this way: “The goal is more people in prison.”

Boyle wrote, “By making the internal investigation an instrumentality of the government, the Yates memo … undermines the traditional and constitutional rights associated with criminal prosecution.” He added, “When an FBI agent or a prosecutor wants to speak with a potential individual, the individual knows that he or she is meeting with a representative of the government there to protect the interest of the government. When the employee of a company is summoned to appear before … counsel working for the company, roles are far less clear.”

Despite the greater scrutiny, 79% of respondents to the DLA Piper survey said their company has made no changes to its compliance program as a result. “The inaction is disquieting,” the law firm wrote.